Profit

People often say that it is virtually impossible to turn a profit in football, but in this respect Mike Ashley has, on the face of it, done a remarkably good job at Newcastle United. For the past four years, Newcastle United’s published accounts have shown profits ranging from £1.4m in 2011/12 to £32.6m in 2010/11, totalling £62.6m over that period.

As in any business, profit (or loss if negative) is defined as the difference between revenue on the one hand, and costs on the other. Revenue streams for a football club are comprised of match day, commercial and TV revenue. Under Ashley, Newcastle United’s matchday revenue has decreased, as has commercial revenue to an even greater extent. Added up, the drop in income for both these revenue streams amounts to £20m compared to when Ashley took over the club, in a period where all (!) other Premier League clubs have managed to grow their (combined) income from these sources.

Mike Ashley’s saving grace on the revenue side of the equation has been TV revenue, which has risen astronomically. The club earns approximately £50m more per season than it did in 2007. The thing is, this revenue stream is something that the club have zero influence over beyond their finishing position in the league, as the domestic and overseas TV deals are negotiated by the Premier League and not clubs individually. Subsequently, the income from the deal is distributed relatively evenly amongst the 20 clubs participating in the league that season. To credit Ashley with anything other than amazing foresight that TV deals were about to explode would be wrong.

Another area where the club have done significantly ‘better’ than before Ashley bought the club, is profit on player trading. Ashley’s blueprint for the club is to buy players under 25 with potential and something to prove as scouted extensively by chief scout Graham Carr, who tends to do his work in countries like France and Holland where better value for money is to be had in comparison to on these shores. The next stage of the plan being to sell them on for a profit to ‘bigger’ clubs once they have proven themselves at Newcastle United.

In terms of cost, Ashley has kept a tight lid on outgoings, and they have remained roughly the same as before his takeover. This has ultimately made the club a rather profitable business. Sadly, this running of a very tight ship (in terms of outgoings) extends to the area of investment in the footballing side of the operation. Mainly the playing squad, manager and coaching team, which has resulted in threadbare squads, important players not adequately replaced and, ultimately, mid-table mediocrity. This lack of investment in football areas is all-the-more astonishing considering it runs at a profit, so it would make sense to entrust the chief scout with a higher budget to play with, in a bid to see higher league finishes (leading to higher associated TV revenue) and more profit from player trading.

The breakdown of the clubs profitability since 2010 can be seen in the table below:

*2013/14 results not published yet. Cost breakdown unknown at this point.

The average profit over the past four years (or seasons, as this matches more closely to the club’s reporting period) has been around the £15.6m mark. Whilst the club turning a profit is obviously not to be scoffed at, there is a number of significant concerns surrounding this:

The increased profitability is entirely attributable to higher TV revenue (an area outside of the club’s control) and player trading (directly affecting the clubs ambitions as a sporting institution), not through ambitious or strategic growth of the football club.

The revenue areas more closely controlled by the club, i.e match day revenue and in particular commercial revenue, have both decreased significantly, to the tune of over £10m in total per year over Ashley’s reign.

The profits that have been posted have not been reinvested to benefit the club and allow it to compete properly on a sporting level, or used to lower the debt to Ashley.

To summarise, Ashley has turned Newcastle United into a real cash-cow, a football club that posts impressive financial results year on year. However, this has been done to the detriment of the strength of the playing squad and managerial/coaching team, which explains why the club have done significantly worse in terms of league finishes and more evidently, cup competitions.

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